Microsoft's Pregnant Pause

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Opinion: The software-plus-services model can spell opportunity for the channel, but it also brings with it considerable risk.

For as long as anybody can remember, Microsoft has always been pregnant in one form or another in the sense that there is always some great new product launch just over the horizon that spells great opportunity for the channel.

But as we consider the news out of the Microsoft Worldwide Partner Conference in Denver the week of July 9, the anxious period of gestation that Microsoft is now asking the channel community to endure now comes in two forms. The first iteration is the traditional major product rollout schedule, with Windows Server 2008, SQL Server 2008 and Visual Studio 2008 all now scheduled for rollout on Feb. 27, 2008. Of equal importance to the channel community is the fact that it looks like the first major service pack of Vista is not going to arrive before the end of the year, creating a "big bang" effect in the first quarter of 2008 because most corporate customers are avoiding Vista pending the release of the first service pack.

Although Microsoft partners have a lot of products to sell today, Vista, Windows Server 2008 and SQL Server represent the big product troika in terms of opportunities for solution providers, which means the fact that they are six months or more from being ready for prime time may only serve to further entice customers to sitting pat with their existing investments rather than upgrading.

Microsoft partners have come to expect long product roll cycles given the history of Microsoft, but the second cause for pause in the Microsoft channel community is the evolution of SAAS (software as a service) as a business model that is now being embraced by Microsoft under the heading of "software plus services."

In a speech that seemed intended to assuage as much as rally, Microsoft CEO Steve Ballmer used his keynote presentation at the conference to differentiate Microsoft's approach to software services from competitors while also promising partners that they would play a strategic role in the creation and delivery of those services.

Microsoft is looking to clearly differentiate its approach to software services from rivals such as Google and Salesforce.com by emphasizing that the future of computing lies in the blended functionality users will take advantage of by using rich interfaces on thin clients that are intimately connected back to on-premises servers and applications that reside on the Web.

In essence, Ballmer said using the term SAAS to describe Microsoft's strategy is too limiting. According to Ballmer, he rejects claims that SAAS is going to be the only computing model as "nonsense" because people to one degree or another are always going to want and need a rich client experience.

Ballmer said that the software services that Microsoft will offer will target consumers, business customers, developers and companies that intend to provide services over the Web. As part of that effort, Ballmer said Microsoft will make its services available for resale by its partners while also opening up those services so partners can extend them to create their own applications using a software-plus-services framework.
Ballmer maintained that technology services associated with a software-plus-services model will continue to grow rather than contract. Many solution providers have expressed concerns that software services model reduce the need for their technical services because customization is typically more limited and there is no revenue associated with installation.

Although Ballmer said he is customarily optimistic about software services, he did remind partners that the vast majority of the revenue they would generate this year would come from traditional on-premises software sales. But, nevertheless, he did also stress that the software-plus-services model is inevitable.

For solution providers, all this change can spell opportunity, but it also brings with it considerable risk. In the short term, they have to figure out what Microsoft products are actually selling today and then what products will actually sell in 2008. Longer term, they are being asked to reconstitute their business models around a software-plus-services strategy that is fundamentally different from the business models they rely on today. And with that will come change in not only the products they sell, but also the types of people they need to hire and the IT infrastructure they will need to build out to support it, unless they plan to be content merely functioning as an agent reselling a Microsoft service.

Furthermore, there is a high probability that all this change and uncertainty is going to entice new competition from startups using completely different business models, which will be quickly followed by a period of merger and acquisition activity stemming from the cutthroat Darwinian competition that will erupt as solution providers with different business models compete for regional, national and global services supremacy.

This is a time of great change in the Microsoft channel and many of the decisions that solution providers make about their business in the next six months are very well likely to dictate their fates for the next decade.